So, you took out a merchant cash advance (MCA) to give your business a boost, and now: you’re drowning in debt. Those daily payments are crippling your cash flow, and the threats from the MCA company are getting uglier by the day. You’re at risk of losing everything you’ve built.But take a deep breath, because there’s a way out of this nightmare – if you act fast. This guide will walk you through strategies for dealing with a crushing MCA, including:
- Understanding the MCA Debt Trap
- Invoking Reconciliation Clauses
- Negotiating Settlements
- Consolidating or Refinancing MCAs
- Declaring Bankruptcy
- Fighting Lawsuits and Judgments
We’ll explore each option in-depth, so you can make an informed decision and regain control. Let’s dive in.
The Vicious Cycle of MCA Debt
First, let’s look at how you ended up in this mess. MCAs are marketed as a simple cash advance – the company purchases a slice of your future revenues at a discount. Seems harmless, right?Wrong. These “advances” are essentially unregulated, usurious loans with eye-watering interest rates. We’re talking 40%, 80%, even over 100% in many cases. The repayment terms are ruthless: daily or weekly automated debits from your business accounts.So when sales dip, even temporarily, you’re suddenly paying a massive chunk of your shrunken revenues to the MCA company. It’s a vicious, accelerating cycle that can bleed a business dry in months.The MCA industry thrives on exploiting desperate small businesses. They bury predatory terms in dense legalese, secure personal guarantees, and pounce at the first missed payment. It’s a debt trap, pure and simple.
Invoking Reconciliation: Adjusting Repayment Terms
If your revenues have fallen, you may have grounds to invoke the reconciliation clause in your MCA contract. This allows the repayment amounts to be adjusted down, since the MCA is based on a percentage of receivables.The MCA company is legally obligated to reconcile if sales have dropped. But, they’ll fight you on it – so be prepared to show detailed financial documentation proving the decline.Having an experienced MCA attorney in your corner vastly improves your odds of a successful reconciliation. They know exactly what evidence to provide, and how to forcefully assert your rights under the contract.
Settling the Debt for Pennies on the Dollar
If reconciliation fails, or the MCA balance is simply unmanageable, you may be able to settle the debt for a lump-sum payoff at a reduced amount.MCA companies would often rather take, say, 50 cents on the dollar upfront than chase you endlessly for the full amount. An experienced debt settlement lawyer can negotiate this on your behalf.The keys are: demonstrating an inability to pay the full balance, and having the funds readily available to remit an acceptable settlement figure. Thorough documentation of your financials is crucial.With skilled negotiation, it’s possible to settle an MCA debt for just 25-30% of the outstanding balance in some cases. A huge win, allowing you to refocus on your business.
Consolidating or Refinancing MCAs
For businesses with solid financials and growth prospects, consolidating or refinancing existing MCAs may be an option. This involves taking out a new loan or line of credit to pay off those crushing MCA debts.The new financing, whether from a bank, online lender, or even another MCA company, should have much more favorable terms – lower fees, longer repayment periods, and smaller periodic payments.Refinancing essentially hits the reset button on your cash flow. Just be wary of predatory consolidation loans that simply dig the debt hole deeper. Always read the fine print.
Last Resort: Declaring Bankruptcy
When all else fails, bankruptcy may be the only path to discharging an unmanageable MCA debt load. Both Chapter 7 liquidation and Chapter 11 reorganization can provide this relief.However, bankruptcy has major downsides: it will obliterate your business credit for years, and personal assets may still be exposed if you signed a personal guarantee on the MCA, which most require.There are also timing issues, as an MCA company will likely sue for a judgment before you can file bankruptcy. Having that judgment can complicate a bankruptcy case significantly.Bankruptcy should only be pursued under the guidance of an experienced attorney well-versed in this complex area of law. It’s a last resort, but one that may ultimately be necessary.
Dismantling Lawsuits and Judgments
If you’ve already been served with an MCA lawsuit, or a judgment has been entered against you, don’t panic. With the right legal strategy, these can potentially be defeated or minimized.Your first move is to bring in a skilled litigator specializing in MCA cases. They’ll analyze the contract line-by-line, looking for any violations, deceptions, or illegal clauses that could invalidate it entirely.Things like usurious interest rates, hidden fees, lack of proper disclosures – all potential landmines that can defuse the MCA company’s case if properly exploited.Even if the contract appears airtight, an experienced attorney can still work to negotiate a vastly reduced settlement to satisfy any judgment. Or in some cases, have it vacated or appealed on solid legal grounds.The key is moving swiftly and decisively with expert legal representation before the MCA company can take further aggressive collection actions.
Your Lifeline Out of the Debt Trap
Feeling trapped by crushing MCA debt is an all-too-common plight for small business owners. The companies rely on opaque contracts, misleading sales tactics, and sheer intimidation.But you have rights and options – if you know how to wield them strategically. From invoking reconciliation clauses to negotiating settlements to fighting lawsuits, there are paths to escape this vicious cycle.The first, crucial step? Bringing in experienced legal firepower with a track record of dismantling predatory MCA agreements and neutralizing lawsuits. With the right team in your corner, you can regain control and get your business’s future back on track.At our firm, we’ve made careers of taking on the MCA industry’s worst actors and bullies. We understand the debt trap tactics inside and out – because we’ve spent decades studying and defeating them.When an MCA company tries to bleed you dry with usurious debt and legal intimidation, we fight back with overwhelming firepower. Our veteran litigators will:
- Analyze your contracts line-by-line for violations and illegalities
- Invoke reconciliation clauses to force reasonable repayment terms
- Negotiate to settle your debt for a small fraction of the balance
- Dismantle lawsuits by exposing predation and deception
- Leverage bankruptcy as a final option to discharge debts
We leave no stone unturned in pursuit of the best possible outcome for you and your business. Escaping an MCA debt trap is never easy – but with our firm’s expertise, it’s eminently achievable.Don’t resign yourself to financial ruin at the hands of these usurious lenders. Reach out for a free consultation today, and let’s start forging your path to solvency and success.